Peak, what peak? Hopes of a seasonal turnaround for carriers are sinking fast. Faced with mounting signs of a slowdown in trade and uncertainty over trade conflicts, more and more carriers and forwarders have abandoned hopes for a strong peak season this year.
Few players had harbored much optimism to begin with, but what hopes remained have waned in recent weeks, as indications of a strengthening market have been elusive.
“We’re seeing very little peak season activity,” one large logistics provider observed.
“Peak season this year is kind of a non-event,” said Jon Slangerup, CEO of American Global Logistics. “No one has expected a big peak. Demand is quite soft.”
The Freightos Baltic Index confirms this. “Peak season prospects are looking increasingly dim for carriers,” Freightos CMO Eytan Buchman said on August 21, when the index published its latest weekly update.
The index shows ocean container rates from China to the US West Cost down 10% for the week and 20% down year-on-year. Rates from China to the US East Coast fell another 3% from the previous week and are also down 20% from a year ago.
Buchman noted that price increases scheduled to apply in mid-August have been completely cancelled.
US imports sank 3% in June. Not surprisingly the biggest factor was the slowdown in China-US trade, which shows a 5% decline in containerized US imports from China in the first half of the year.
July continued this dismal trend. US imports from Asia were off 19.3% that month, while imports from China dropped 24.7%.
US retailers are resigned to further declines in US import volumes in the coming months. In its Global Port Tracker for the month of August, the National Retail Federation projects volumes to track 1.1% lower in September compared to September 2018, followed by a 6.2% decline in October.
“The story we saw develop in 2018 was retailers forwarding goods to beat tariffs,” said Mario Cordero, executive director of the Port of Long Beach. “For 2019, it seems that the cargo is all here and warehouses are filled. That’s disrupting container movement and the growth we would normally see this time of year.”
Rather than ramp up capacity, container lines have blanked sailings in an effort to keep up rate levels. Some air carriers, such as Lufthansa, have indicated that they may scale back capacity by retiring older freighter aircraft.
A year ago forwarders had signed up cargo charters to supplement their capacity allocations on scheduled flights out of major Asian gateways. This year nobody seems anxious to find extra lift.
“Nobody’s committing anything on the freighter side right now,” said Tim Strauss, vice president of cargo at Air Canada.
Air cargo volumes this year reflect the slowdown in global trade activity. Asian carriers have borne the brunt of this. The Association of Asia Pacific Airlines (AAPA) reported a 7.2% decline in air cargo traffic of its members in June. Cathay Pacific saw traffic slip 9.1%.
At Hong Kong International Airport cargo throughput in June was 8.6% below the level recorded in June 2018, while Singapore’s volume shrank 5.1%.
The AAPA sees no recovery in the near term. Noting that airlines are faced with a “prevailing weakness in international trade flows across regions, as widening trade disputes and higher tariffs continue to disrupt global supply chains,” AAPA director general Andrew Herdman said that air cargo demand is “expected to remain weak.”
Strauss has not written off the peak entirely, but he does not expect anything near past years’ peak seasons. “I think we will see a peak, but it will be driven by a couple of products, and it will be brief,” he said.
“All around the world, the trade war has created quite a lot of challenges,” Slangerup observed. “Peak season will be very modest this year. It will be a lot flatter than what we’ve seen in prior years.”
With hope for a resurgent peak season lifting all boats, logistics players are adjusting their expectations for the full year downward.
“Given what happened in Q2 there’s no reason to believe that there will be 5%, 6%, 7%, 8% in the second half of the year, which would be required to produce a flat development in the segment for the year as a whole. We expect the market to post negative volume growth of 4% to 5% in 2019,” said Detlef Trefzger, CEO of Kuehne + Nagel when the logistics giant reported its results for the second quarter, which showed an 8% drop in airfreight. Previously the company had projected flat growth for the year.
He added that he does not expect a return to growth in the foreseeable future.
Slangerup sees a slow return of momentum over time. “Repositioning of manufacturing will take time, and importers will need to protect their own market share on the retail front. All meaning, the water will break at some point and volume will return, just much slower than normal,” he said.
By Ian Putzger
Correspondent | Toronto